I've written about Brazil pre-Lula and post-Lula and spent the last five years covering all aspects of the country for Dow Jones, Wall Street Journal and Barron's. Meanwhile, for an undetermined amount of time, and with a little help from my friends, I will be parachuting primarily into Brazil, Russia, India and China. But will also be on the look out for interesting business stories and investing ideas throughout the emerging markets.

Russian Oligarchs Lose Friend In Cyprus Banks

Russian oligarchs with offshore accounts in one of their favorite Mediterranean Islands, Cyprus, just lost a close friend.

The Cyprus Central Bank ordered all banks to suspend operations this weekend, including both domestic and international operations. This is for state run banks only. Cyprus based Cypriot news’ website, 24h, said it has obtained a confidential Central Bank letter calling on banks to stop all form of payments from their accounts, even those that were from one account at the bank to another.

The measure came after European finance ministers agreed Saturday to tax deposits in Cyprus as part of its 10 billion-euro ($13 billion) bailout. The island nation has been forced to impose a fee of 6.75% on deposits of less than 100,000 euros and 9.9% on deposits above that amount. Locals rushed the their banks, but ATMs were not spitting out cash, according to 24h.

Cyprus’ President Nicos Anastasiades said he had to choose between the “catastrophic scenario of disorderly bankruptcy or the scenario of a painful but controlled management of the crisis”, Ria Novosti reported today. He said those who keep deposits in Cyprus banks for two years will get half of the value of the tax in securitized gas revenues.

Cyprus’s debt crisis puts at risk Russian businesses, Moody’s credit-rating agency said. The report said Russian banks working with the companies of Russian oligarchs registered in Cyprus stand to lose billions if the island’s government defaults.

For now, Barclays Capital said Saturday that it believes the Cyprus crisis will be “contained” to the island and not spread north to the debt-burdened southern states.

The country’s authorities and the E.U. agreed over the weekend on the 10 billion euro adjustment program. More importantly, the program includes burden sharing of bank liabilities, including an “upfront one-off stability levy applicable to resident and non-resident depositors”. Media reports say the size of the tax levy would amount to 5.8 billion, or a little more than half of the bailout fund. The tax law goes into effect on Tuesday when banks re-open.

Barclays said that Germany, in particular, welcomed the agreement because it provides a sustainable solution that is partially financed. Christine Lagarde mentioned that the International Monetary Fund, which she leads, might contribute another billion euros to the financing.

“We consider that the scope of potential contagion to other peripheral countries in terms of deposit outflows and sovereign debt is considerably more limited than if such a decision would have been taken in previous programs,” Barclays analysts in London led by Antonio Pascual said Saturday in a note to clients. He said the likelihood of a bank run in other periphery countries was limited, including in Greece.

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.